Under the Dawes Plan the German economy boomed in the 1920s, paying reparations and increasing domestic production. Germany's economy retracted in 1929 when Congress discontinued the Dawes Plan loans. This was not just a problem for Germany. Europe received almost $8 billion USD in American credit between 1924 and 1930 in addition to other war time loans.

Germany's Weimar Republic was hit hard by the depression as American loans to help rebuild the German economy now stopped. Unemployment soared, especially in larger cities. Repayment of the war reparations due by Germany were suspended in 1932 following the Lausanne Conference of 1932. By that time Germany had repaid 1/8 of the reparations.

Falling prices and demand induced by the crisis created an additional problem in the central European banking system, where the financial system had particularly close relationships with business. In 1931 the Creditanstalt bank in Vienna collapsed, causing a financial panic across Europe.